The industry has raised concerns the Financial Services Authority (FSA) will announce major changes to mortgage regulation in its review next year, rather than focusing on the positive steps firms have taken.
Chris Cummings, director general of the Association of Independent Financial Advisers (Aifa), says he is worried the FSA will introduce major changes only one year after it began regulating the mortgage industry saying: “The important thing is the FSA does a review rather than an announcement of change.”
He points out many firms are still coping with the huge costs of regulation and further changes would be difficult to cope with. Instead, he says he hopes the FSA will “reflect on the good work” firms have done.
Cummings admits the FSA mystery shopping exercises have had mixed results but argues the first year of regulation is difficult in any industry arguing that, in fact, firms have coped extremely well. Moreover, the areas where firms did not come up to scratch were in procedural areas, rather than in the giving of advice, so consumers were not affected, he adds.
Likewise, Ray Boulger, senior technical manager at Charcol, says: “We do not want to change too often.” He points out the European Union is looking at mortgage regulation at the moment and if it issues a directive the FSA would have to include the changes “so we might have to go through the whole process again”.
Boulger says if the FSA introduces minor rule changes which do not involve firms spending too much money that would be fine. But, if the FSA causes additional IT expenditure the changes “would not be welcome”.
He adds the costs of regulation have already been greater than the FSA predicted in its cost-benefit analysis. Boulger says: “While we need regulation to be robust for people at the bottom of the pile, people who do it properly have to spend a lot for not much improvement in what they do.”
While Boulger believes the first year of regulation has been mostly successful, he says the FSA’s objective of making it easier for consumers to shop around has not been achieved. He says consumers generally choose to go to a lender on the basis of someone’s advice and cannot be bothered to shop around and have the same one-and-a-half-hour conversation again.
The main area the FSA will focus on in their review is Key Facts Illustrations (KFIs), Boulger predicts. He says some firms have tried to reduce the length of their KFIs but most are still longer than the FSA envisaged. He admits getting the balance right is not easy because KFIs must include what the FSA says are key facts and lenders also want to include information they think is necessary to being fair and open.
Likewise, Nick Baxter, managing director of mortgage promotions, says KFIs are still far too long and one year after mortgage regulation is the “right time to sit down and ask if all the information is needed”.
Although the costs of regulation are increasing, Baxter says some of the costs actually benefit the adviser’s business. For example, data-recording can be used for marketing purposes and enables firms to compete better. Baxter says firms should therefore be more rigid in their data-recording by collecting data as they go along rather than once a year, but he adds many firms still do not have the necessary systems and procedures in place to do this.
The FSA says its review will investigate disclosure requirements and advice and selling standards through a variety of tools, such as consumer research, statistical information and mystery shopping exercises. The first stage of the review will begin at the end of this year and the FSA says it aims to feed back the initial findings in the summer of 2006.
Dan Waters, director of retail policy division at the FSA, says: “Naturally we recognise that it is still early days, and that we have to be realistic about the timescales in which the various objectives of the new regimes may be achieved. That’s why in the review we are rolling programmes which will measure the outcomes of the regimes in stages.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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